Monday, August 12, 2013

Noble Group : Awaiting agriculture turnaround (DBSV)

2Q13 continues to disappoint. Noble’s revenue posted a decent 5% y-o-y and 12% q-o-q growth to US$25.3bn in 2Q13, on higher volume of 57.7mt (+7% y-o-y, +10% q-o-q). However, core profit disappointed at US$77.1m (excl. US$14.3m loss on supply chain asset), down 47% y-o-y, but up 27% from a low base last quarter. The culprit was again the Agriculture segment which reported a US$54m operating loss, a marginal improvement from US$66m in 1Q. This was partially mitigated by stronger performances of the other two segments, Energy and MMO.

Sequential recovery expected for Agriculture. Noble’s sugar mill operations in Brazil are poised to recover significantly as we enter the peak season in 3Q, aided by higher ethanol production and prices. The recovery in sugar prices plays a critical role. The current price at 16-17 UScents/pound is not sustainable as even the first quartile sugar mills are barely profitable.

Cut earnings; TP lowered to S$0.93. Given the weak Agriculture segment in 2Q and challenging outlook, we have lowered our FY13-14F gross profit /tonne assumptions for this segment by US$3.9/t and US$2.0/t to US$1.5/t and US$3.3/t, respectively. This leads us to reduce FY13/14F net profit by 14%/10%. Maintain HOLD with revised TP of S$0.93, based on average valuations of 8x FY13F PE and 1.1x P/BV, in line with 0.5 SD below mean.

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